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American Regionalism and Global Free Trade

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  • Edward E. Leamer

Abstract

A free trade agreement supports global free trade since trade barriers tend to divert trade in favor of members, but not reduce imports. The term: 'mutual assured deterrence' is used to refer to a regional free trade association that has the feature that no member can gain individually from the imposition of a barrier against a non- member. Mutual assured deterrence is shown to be possible for a surprisingly rich set of partners. A customs union is compatible with global free trade if the vast majority of trade takes place naturally within the confines of the association. A customs union that is likely to have this property would combine countries to form a nearly exact economic replica of the globe. The economic combination of Mexico and the United States doesn't form a replica of the global economy because, compared with Asia, North America has relatively high capital per worker even after adding the Mexican workforce. However, NAFTA does seem to have the property of mutual assured deterrence, and may for that reason amount to a commitment to global free trade as well as regional free trade.

Suggested Citation

  • Edward E. Leamer, 1994. "American Regionalism and Global Free Trade," NBER Working Papers 4753, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4753
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    References listed on IDEAS

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    1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    2. Deepak Lal, 1993. "Trade Blocs and Multilateral Free Trade," Journal of Common Market Studies, Wiley Blackwell, vol. 31(3), pages 349-358, September.
    3. Goto, J. & Hamada, K., 1993. "Economic Preconditions for the Asian Regional Integration," Papers 685, Yale - Economic Growth Center.
    4. Paul Krugman, 1989. "Is Bilateralism Bad?," NBER Working Papers 2972, National Bureau of Economic Research, Inc.
    5. Junichi Goto & Koichi Hamada, 1993. "Economic Preconditions for the Asian Regional Integration," Discussion Paper Series 31, Research Institute for Economics & Business Administration, Kobe University.
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    Cited by:

    1. J. David Richardson, 1995. "Income Inequality and Trade: How to Think, What to Conclude," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 33-55, Summer.
    2. James R. Markusen & Anthony J. Venables, 1996. "Multinational Production, Skilled Labor and Real Wages," NBER Working Papers 5483, National Bureau of Economic Research, Inc.
    3. Anonymous & Ballenger, Nicole, 2000. "Technological Changes in the Transportation Sector--Effects on U.S. Food and Agricultural Trade: A Proceedings," Miscellaneous Publications 33551, United States Department of Agriculture, Economic Research Service.
    4. Baharumshah, Ahmad Zubaidi & Onwuka, Kevin Odulukwe & Habibullah, Muzafar Shah, 2007. "Is a regional trade bloc a prelude to multilateral trade liberalization?: Empirical evidence from the ASEAN-5 economies," Journal of Asian Economics, Elsevier, vol. 18(2), pages 384-402, April.

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